As treaties and trade agreements are implemented this year, more U.S. companies are looking at the Association of Southeast Asian Nations for fresh business opportunities. Fortunately, a whole host of logistics and transportation service providers are laying the groundwork to overcome inherent infrastructure challenges.

Today, U.S. trucking companies face more regulations than any time in history—and they claim this “regulatory tsunami” is putting the clamp on U.S. productivity. During this session shippers will gain a better understanding of the current state of trucking regulations (HOS & CSA) and the impact they're having on capacity and rates.

The Memphis-based transportation and logistics bellwether also reported that quarterly revenue of $11.4 billion was up 3 percent from last year’s $11.1 billion, and operating income at $827 million was up 15 percent from $718 million. Quarterly operating margin—at 7.3 percent—was up from 6.5 percent a year ago. FedEx reported earnings per share of $1.57, which topped last year’s $1.39 and was impacted by 11 cents per share due to Superstorm Sandy. Earnings per share did not meet Wall Street expectations of $1.64.

“FedEx posted solid second quarter earnings, reflecting improved performance at FedEx Express as the profit improvement initiatives we introduced more than a year ago continue to gain momentum,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, on the company’s earnings call this morning. “A later start to the holiday shipping season contributed to a decline in operating margin at Ground on a year-to-year basis, and we expect full-year operating margin at Ground to be consistent with the FY ’13 margin of nearly 17 percent. FedEx Freight results were affected by a shift in customer mix and shipment attributes. Overall, we believe our strategy is working well…and we expect revenue and earnings growth to continue into the third quarter and the remainder of 2014, driven by our ongoing improvements and results by our transport segments.”

And looking at the macroeconomic outlook, T. Michael Glenn, FedEx executive vice president, market development and corporate communications, said on the call that the FedEx economic forecast calls for moderate growth in the global economy, with real GDP, industrial production, and consumer spending better sequentially in both calendar 2014 and 2015 in the U.S. and globally. The FedEx U.S. GDP forecast, he said, is 2.4 percent for calendar 2014 and 3 percent for calendar 2015, with industrial production at 3.1 percent and 3.6 percent for the same period.

Individual unit quarterly performances: FedEx Express quarterly revenue was down 0.3 percent at $6.84 billion, with an operating margin of 4.8 percent, up from last year’s 3.4 percent and an operating income of $326 million for a 42 percent annual increase. FedEx said revenue was

Revenue at FedEx Ground increased 10 percent at $2.59 billion, with an operating margin of 14.9 percent, compared to 15.9 percent last year, and an operating income of $424 million for a 3 percent annual gain. Company officials said revenue growth due in part to rate hikes and higher residential surcharges that were offset by lower fuel surcharges.

FedEx Freight revenue headed up 4 percent to $1.43 billion, and operating income rose 1 percent to $77 million. Operating margin inched down to 5.4 percent from 5.5 percent. Average daily shipments—at 90,276—were up 4 percent, and weight per shipment—at 1,165—was up 2 percent. Revenue per hundredweight dipped down 1 percent to $19.99, due to lower fuel surcharges, higher weight per shipment, and shorter length of haul, according to FedEx.

E-commerce served as the driver for daily volume for FedEx SmartPost, its “last mile” delivery service partnership with the United States Postal Service in seeing a 9 percent annual increase at 2.154 million packages per day, with revenue per package down 3 percent at $1.72, due to higher postage rates and lower fuel surcharges that were partially offset by rate increases.

Total U.S. domestic express packages at 2.493 million per day were down 1.6 percent, and International Priority packages—at 414,000—were up 1.5 percent per day. Total revenue per U.S. domestic package at $17.45 was up 2 percent, and total revenue per package for International Priority and International Domestic at $61.27 and $6.83 were up 2 percent and down 5.8 percent, respectively.

FedEx’s top executive Smith said that the past three Mondays—December 2, December 9, and December 16—were record days for average daily volume, with December 16 representing the delivery of more than 22 million packages.

Even with plenty of positive data points, there is cause for concern when it comes to second quarter shipment data for FedEx, according to Jerry Hempstead, president of Orlando, Fla.-based parcel consultancy Hempstead Consulting.

“Granted that Cyber Monday this year occurred on Monday Nov 30, the average number of shipments display some troubling trends,” he said. “The most surprising is the Smartpost growth rate which fell to a single digit for the first time since their first quarter (June, July, and August) of 2011. This is still the fastest growing FedEx service but they have been accustomed to growing in the 20 percent range. For example Smartpost grew at 25.7 percent in the prior quarter.”

Hempstead observed that this business will be impacted by a large increase in postage cost in the next quarter, which takes effect Jan 26, 2014, adding, however, most if not all of this is passed on to shippers using this service. Higher prices, he said, can mute some shipment growth as eventually these costs will be shouldered by consumers in this B2C service, coupled with his sentiment that no there is no such thing as ‘free shipping’ because “in the end someone is paying for it.”

What’s more, he stated that growth in the traditional ground parcel business dropped from 10 percent or more in the prior two quarters to 8 percent this quarter.

“The coal that creates the heat to make the steam that fires up the engine that pulls the FedEx train is their air business,” he said. “ Total domestic air packages were down led by a drop by the high yielding US Overnight Envelope business of over 5 percent. This is the business most vulnerable to conversion to electronic delivery. In my opinion this is not the oft discussed diversion to ground alternatives although some of this has been proved to be cannibalized by guaranteed next day ground footprints and perhaps to the USPS flat rate priority mail envelope. Regardless of the cause, this has to be most concerning to FedEx. Pressure needs to be put on the sales organization to capture a greater share of overnight packages from competitors.”

About the Author

Jeff BermanGroup News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

Subscribe to Logistics Management magazine

Subscribe today. It's FREE!

Get timely insider information that you can use to better manage yourentire logistics operation.

Recent Entries

The Department of Transportation’s Bureau of Transportation Statistics (BTS) reported this week that U.S. trade with its North America Free Trade Agreement partners Canada and Mexico in January dropped 1.2 percent to $89.3 billion.

In today's supply chain, the only constant is change.
Our white paper 'Change Your Perspective: Four Keys to Effectively Adapting to Rapid Change in the Distribution Center Environment' provides key insights on not only adapting to trends, but which trends will enable you to achieve running the warehouse of the future.